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Whole life insurance

Posted July 10, 2013 in Advice Column

When you’re shopping for life insurance, thinking long term can be the best way to get the most for your money.

Whole life insurance offers a stable, lifelong insurance benefit, as well as a cash value component. As the policy matures, its cash value becomes available for borrowing or as a surrender value. Plus, the insurer may pay dividends* to the policy owner. This combination of stability, accessibility, and added value makes whole life an attractive option for people with long-term insurance needs and financial goals.

• Level premiums. Whole life is a type of permanent life insurance, which means that the policy is designed to offer lifelong coverage. As long as the policyholder has paid the premiums as required by the policy, the policy will pay out a death benefit to the beneficiaries upon the insured person’s passing, regardless of when that occurs.

Typically, a whole life policyholder pays level premiums throughout the life of the insured person. In some cases, the policy can be paid up in a more limited time, such as 10,15 or 20 years or even as a one-time premium, and still provide lifelong coverage. In any case, whole life’s level premiums provide predictable and — as inflation rises over time — gradually more affordable expenses for solid lifetime coverage.

• Cash value. The ability to accrue and access cash value is one of the most attractive features of a whole life policy. Here’s how it works.

A portion of each whole life premium payment is credited to the policy’s cash value, which grows over time. This value is accessible as a policy loan** or is payable when the policy is surrendered.

An important consideration, though, is that the insurer will charge interest on any loan taken out of the policy’s cash value. Also, any outstanding loans at the time of the insured person’s death will be deducted from the death benefit. By repaying any loans in a timely fashion, the insured person can maintain the full amount of the death benefit.

• Dividends. Many whole life policies are eligible to receive dividends, or payments based on the insurer’s performance, such as investment earnings, favorable mortality rates and operational savings. These dividends can be paid in cash or, in some cases, applied to policy enhancements.

• Summary. Whole life insurance helps provide family financial security through a combination of lifetime coverage and cash value borrowing privileges. For more information about whether whole life is right for you, discuss your needs with an insurance professional or certified financial planner.

* Dividends are not guaranteed.

** Unpaid loans and withdrawals will reduce the guaranteed death benefit and policy cash value. Loans accrue interest.

Information provided by Mitch Lunn, State Farm Insurance, 616 N 15th St. Fort Dodge, 576-4171.

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